Question

S Ltd. forfeited 40 shares of Rs 10 each issued at a premium of 20% to Mr. Ramesh who had applied for 48 shares. Mr. Ramesh paid Rs 2 per share on application and did not pay the allotment money of Rs 5 (including premium) per share and the first cap of Rs 3 per share. Out of these, 20 shares were re-issued to Krishan credited as fully paid for Rs 9 per share, the Profit on re-issue is _____________.

• A. Rs 96,
• B. Rs 76,
• C. Rs 48,
• D. Rs 28,

Answer 1

The correct option is D Rs 28,

Forfeiture amount per share is the amount to be received by the company on forfeiture of each share.

$ForfeitureAmount=ApplicationAmount$

Substitute the values in above equation

$ForfeitureAmount=Rs2$

Forfeiture amount is the money received by company on forfeiture (cancellation of share) or on the reissue of share.

$ForfeitureAmount=No.ofshares\times ForfeitureAmount$

Substitute the values in the above equation

$ForfeitureAmount=40shares\times Rs2=Rs80$

$ForfeitureAmountfor20share=20shares\times Rs2=Rs40$

$Forfeitureamountonreissue=20shares\times Rs2=40$

Profit on the reissue is the profit earned by the company when the forfeited shares are reissued

$Profitonreissue=ForfeitedAmountonforfeiture-Forfeitedamountonreissue$

Substitute the values in the above equation

$Profitonreissue=Rs40-Rs20=Rs20$

Hence, the profit earned on the reissue of shares is Rs $20$.

Share Forfeiture a/c Dr. Rs20

To share capital a/ Rs20.